Florida businesses will see another workers’ comp rate decrease next year if the latest filing by the National Council on Compensation Insurance (NCCI) is approved by Florida regulators.
Carrier results continue to be favorable in the segment thanks to many market factors, but the rating organization noted 2016 decisions from the Florida Supreme Court are starting to impact carrier workers’ comp claim costs.
The Florida Office of Insurance Regulation said it had received and was reviewing NCCI’s Aug. 27 filing proposing a statewide average premium decrease of 5.4%. If approved, the new rates would become effective Jan. 1, 2020.
“As always, OIR will review the filing to ensure the proposed changes are not excessive, inadequate or unfairly discriminatory and evaluate its potential effects on the insurance marketplace and employers, who are required by law to carry this insurance on their employees,” OIR said in a statement.
NCCI is a licensed rating organization authorized to make rate filings on behalf of workers’ compensation insurance companies in Florida.
NCCI said in its overview of the proposed rate filing that it is based on experience data as of year-end 2018 from policy years 2016 and 2017, which shows continued significant improvement in loss experience.
If approved, it would be the fourth rate decrease for Florida since 2016, when two separate Florida Supreme Court decisions led to much anticipation of higher rates in the near future. NCCI said the decisions in the cases of Castellanos v. Next Door Company and Westphal v. City of St. Petersburg “resulted in changes to the Florida workers compensation landscape.”
The 2016 decisions undid a primary cost-reduction component of reforms passed by Florida lawmakers in 2003. The initial response from NCCI and regulators was a steep rate increase of 14.5 percent for 2017.
In the Castellanos decision, which has been the main driver of concern and accounted for most of the 2017 rate increase, the state’s high court found the state’s mandatory attorney fee schedule unconstitutional as a violation of due process under both the Florida and United States Constitutions. In the Westphal decision, the court found the 104-week statutory limitation on temporary total disability benefits unconstitutional because it said it causes a statutory gap in benefits. The court reinstated a previous 260-week limitation.
But NCCI said in its 2020 rate filing that since the initial rate increase after the decisions, “favorable loss experience has more than offset the combined cost increases that have emerged from those Court decisions.”
Last year OIR approved a workers’ compensation rate decrease of 13.8 percent and had previously requested that NCCI include an assessment of the emerging impact of the Castellanos decision on Florida’s workers’ comp marketplace as part of its 2019 filing. NCCI said last year that 50% of the data analyzed for the 2019 rate filing related to policies that became effective after the Castellanos and Westphal decisions.
For this filing, NCCI said more than 90% of the data analyzed relates to policies that became effective after the Castellanos and Westphal decisions, which are “now exerting upward pressure on system costs, and they will continue to influence Florida workers compensation rates.”
NCCI said policy year 2017 is the first full year post-Castellanos, but the full effects of that decision are not expected to materialize for several years to come as workers’ compensation insurance is a long-tail line that often involves a long period for claims to be resolved.
However, NCCI said the workers’ compensation market is experiencing “unprecedented results” thanks to underwriting discipline, moderating severity, declining frequency and adequate reserves that has resulted in five straight years of combined rations under 100%. NCCI said technology, safer workplaces, improved risk management, and a long-term shift from manufacturing to service sectors has led to a downward trend in frequency for decades.
“NCCI has no expectation that this trend will change course,” it said, and noted it has indicated decreases across most of its jurisdictions, including double digits in several states.
For the Florida filing, NCCI said carriers have experienced claim cost increases since the Castellanos decision, particularly increases in claimant attorney fees. NCCI said many carriers it interviewed reported that litigated claims now represent a relatively larger portion of their book of business since before the Castellanos decision. Loss experience, on the other hand, has improved for Florida carriers.
“While the impacts of the Castellanos decision can be observed, they have been more than offset by the continue improvement in loss ratio,” NCCI said.
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